Retirement Planning

RRSP(Registered Retirement Savings Plans)

RRSPís (Registered Retirement Savings Plans) are the cornerstone of a sound financial plan and a most effective means to create a secure retirement. If you donít regularly contribute to an RRSP, you are missing out on the single most effective way Canadians have to set aside money for the future.

Compare a $5,000 annual investment over 30 years: One inside an RRSP, the other outside (assume a 10% per annum return; marginal tax rate of 50%).


The two most important retirement planning words: start now. Time is the most valuable factor that you can bring to your retirement savings strategy.

Take the following example: 20 year old Susan contributes $2,500 annually to her RRSP for 15 years and then stops altogether at age 35. Based on the compound earnings of her savings over a long period of time, and assuming a 10% annual rate of return, she will accumulate more that $1.5 million by the time she reaches age 65. Thatís three times more money than Bob who also contributes $2,500 to his RRSP annually, up until his retirement, at a 10% annual rate of return but who begins at age 35.


The sooner, the better 

Taxpayers are allowed to contribute up to 18% of the previous yearís earned income to a maximum of $21,000 - 2009, and $22,000 - 2010 into an RRSP. If you belong to an employer sponsored pension plan you can contribute the same amount, minus a calculation, called a Pension Adjustment (PA). If you cannot afford to make the full contribution, Canada Customs and Revenue Agency (CCRA) will permit unused RRSP contribution amounts back to 1990 to be carried forward indefinitely.

RRSP Planning Strategies:

Plan ahead with a spousal RRSP

If your spouse will be in a lower tax bracket at retirement, you can shift retirement income by contributing to a spousal RRSP instead of your own. You get the tax deduction for the full amount contributed up to your allowable contribution limit, and the funds will be withdrawn at retirement by your spouse at the lower tax rate. This works especially well when one spouse has a significantly higher income or a superior employer pension plan.

Avoid the one-shot deal

Thereís good reason to contribute a monthly amount to an RRSP rather than a single lump sum every year. Youíll earn the benefits of compounding: investing a $5,000 lump sum every year for 30 years at 8% growth will accumulate to $604,177. The same amount invested in monthly instalments, would have grown an additional $20,946 over the same time. Hardly pocket change. Similarly, investing even small amounts on a regular basis can help you take advantage of dollar cost averaging. By investing the same amount of money every month, you get the benefit of purchasing more units when prices happen to be at a reduced value. Over time, and as prices recover, the value of your investment can experience significant growth.

Taking out a loan for RRSPís

If you canít make the maximum allowable contribution to your RRSP in any given year, it may make sense to borrow the money. Provided you can pay back the loan the following year, the tax benefit and investment earnings within the RRSP usually compensate for the cost of borrowing. And remember, over the long term, that single contribution could make a difference of tens of thousands of dollars.


Retirement savings are about long-term strategies, not just about chasing the hot stock of the day. The advantage of investing over a long time horizon is that itís a key way to weather the ups and downs of short-term economic cycles. Your RRSP investments should cater to your long-term needs and goals. Day to day investing in the markets can be a stop and go business. But a long-term strategy is the cruise control that will get you to your destination at a steady pace.

The information contained in this commentary is designed to provide you with general information only, and is not intended to be comprehensive advice applicable to the circumstances of any individual. We strongly urge you to seek professional assistance before acting upon information included herein.

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